Monday Market Update – 12/27/2021

Week of December 20, 2021 in Review

Inflation and home sales were on the rise in November, while Jobless Claims continue to reflect healthy, pre-pandemic levels.

The Fed’s favorite measure of inflation, Personal Consumption Expenditures, showed that headline inflation rose 0.6% in November, which was hotter than anticipated. Year over year, the index increased from 5.1% to 5.7%, which is the hottest reading in almost 40 years! Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.5% while the year over year reading increased from 4.2% to 4.7%.

Rising inflation is crucial to monitor – don’t miss our important explanation about this.

In housing news, sales of existing homes rose for the third month in a row, up 1.9% from October to November to an annual pace of 6.46 million units. The lack of homes for sale continues to remain a challenge around the country, as there were only 1.1 million homes for sale at the end of November. This is down nearly 10% from October and 13.3% year over year.

New Home Sales were also up 12.4% from October to November, but there is more to this headline number. Meanwhile, multiple reports show that rents continue to rise, which further highlights the benefits of homeownership. Don’t miss the details about both of these stories below.

There was good news from the labor sector, as Jobless Claims continue to reflect pre-pandemic levels. There are now 2.137 million people in total receiving benefits, which is a healthy number and in stark contrast to the 20 million plus seen last year.

Lastly, the third reading of Gross Domestic Product (GDP) for the third quarter showed a slight revision higher from 2.1% to 2.3%, though this is still pretty anemic considering all of the stimulus. Investors were also closely watching last week’s 20-year Bond auction, which was met with above average demand. The bid to cover of 2.59 was higher than the one-year average of 2.34. Direct and indirect bidders took 85.6% of the auction compared to 78.2% in the previous 12.

Annual Inflation Reaches Hottest Level in Nearly 40 Years

The Fed’s favorite measure of inflation, Personal Consumption Expenditures, showed that headline inflation rose 0.6% in November, which was hotter than anticipated. This caused the year over year reading to increase from 5.1% to 5.7%, which is the hottest reading in almost 40 years!

Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.5%, which was also above the consensus. The year over year reading increased from 4.2% to 4.7%.

Remember, inflation is the arch enemy of fixed investments like Mortgage Bonds because it erodes the buying power of a Bond’s fixed rate of return. If inflation is rising, investors demand a rate of return to combat the faster pace of erosion due to inflation, causing interest rates to rise. This is why keeping an eye on inflation remains critical.

Existing Home Sales Rise for Third Consecutive Month

Existing Home Sales, which measure closings on existing homes, were up 1.9% from October to November to an annual pace of 6.46 million units.

However, the low inventory of homes around the country remains a challenge for many buyers, as there were only 1.1 million homes for sale at the end of November. This is down nearly 10% from October and 13.3% year over year. Inventory is nearing the record low levels of just above 1 million that were seen earlier this year. The continued strong demand for homes and near record low inventory remains supportive of home prices.

The median home price was reported at $353,900, which is up almost 14% year over year. Remember that the median home price is not the same as appreciation. It simply means half the homes sold were above that price and half were below it.

First-time homebuyers accounted for 26% of sales, which is down from 29% in October. This decline is concerning and it’s important to monitor if this is related to seasonal factors or part of a bigger theme. First-time homebuyers, after all, are the engine of the housing market.

Cash buyers remained stable at 24%, while investors purchased 15% of homes, which is down from 17%. Foreclosures and short sales accounted for less than 1% of all transactions.

The Real Scoop on New Home Sales

New Home Sales, which measure signed contracts on new homes, were up 12.4% from October to November at a 744,000 annualized pace. However, this doesn’t tell the whole story. Sales for October were revised lower from 745,000 to 662,000, so when factoring this in, New Home Sales are really unchanged from October’s original reporting.

Year over year sales were down 14%, but the annual comparisons to November 2020 are tough because of the abnormalities in the market due to the pandemic.

The median home price came in at $416,900, which is up from $407,700 in October, and up 19% from last year. Again, the median home price is not the same as appreciation. It simply means half the homes sold were above that price and half were below it. A greater amount of higher-priced homes are being built because there is no margin in lower-priced homes, so naturally the median price is being driven higher.

Rents Continue to Rise

CoreLogic released their Single-Family Rent Index, showing that rents were up nearly 11% year over year in October, marking the sixth consecutive record high within this report. Detached rentals, which are in higher demand, rose by over 12% while attached rentals were up 9%.

Despite the challenges homebuyers are facing due to high demand, low inventory and an uptick in rates, there are still tremendous benefits in homeownership. Rents are rising aggressively, and renewals can continue to rise each year.

For instance, Realtor.com also reported data showing that rents were up almost 20% year over year in November. The national median rent reached $1,771, up almost $300 per month from last year. If we were to reverse engineer this at a 3.25% interest rate, it would equate to $70,000 in additional buying power for housing.

Remember that demographically, people are entering their 30’s in record-high numbers at almost 5 million per year, which should continue to provide robust demand for purchases and rentals.

Jobless Claims Reflect Pre-Pandemic Levels

The number of people filing for unemployment benefits for the first time was unchanged in the latest week, as Initial Jobless Claims were reported at 205,000. This follows the 52-year low that was reported a few weeks ago and is a healthy level. Remember that since this reading reflects the pace of firings and people filing for benefits, the lower the number the better.

Continuing Claims, which measures individuals who continue to receive benefits, decreased 8,000 to 1.859 million, once again reaching a pandemic-era low.

There are now 2.137 million people in total receiving benefits, which is a healthy number and in stark contrast to the 20 million plus seen last year. It also reflects that employers are having a hard time finding new workers and are reducing their pace of firings.

Family Hack of the Week

You’ll kick the new year off on a delicious note with these Cinnamon Rolls from our friends at Allrecipes – perfect for brunch on New Year’s Day, or any day of the year!

Preheat oven to 400 degrees Fahrenheit. Brush a 9-inch square baking dish with 2 tablespoons melted butter.

In a large bowl, whisk 2 cups all-purpose flour, 2 tablespoons sugar, 2 teaspoons baking powder and 1 teaspoon salt. Work 3 tablespoons of softened, unsalted butter into flour mixture. In a separate bowl, beat 3/4 cup milk and 1 egg together. Pour this into the flour mixture and stir with a rubber spatula until a soft dough forms.

Flour a work surface and roll dough into a 1/4-inch thick rectangle. Brush surface of dough with 2 tablespoons melted butter.

In a small bowl, whisk 1/2 cup white sugar, 1/2 cup brown sugar and 1 tablespoon cinnamon. Sprinkle 1/2 of the cinnamon sugar mixture into bottom of prepared baking dish and 1/2 on top of dough. Roll dough to form a log, cut into 18 rolls and place rolls into baking dish. Bake until the rolls are set, approximately 20 to 25 minutes.

While the rolls are baking, beat 1 cup confectioner’s sugar, 4 ounces cream cheese, 1/4 cup softened butter and 1/2 teaspoon vanilla extract until smooth. Once rolls are removed from oven, add frosting to them while hot and enjoy!

What to Look for This Week

Important housing data is ahead this week, beginning Tuesday when the latest home price appreciation figures for October from the Case-Shiller Home Price Index and the Federal Housing Finance Agency (FHFA) House Price Index are reported. Pending Home Sales for November follow on Wednesday.

On Thursday, be sure to look for the latest Jobless Claims data along with regional manufacturing news from December’s Chicago PMI.

Technical Picture

Mortgage Bonds remain in their downtrend, but support at 101.922 held at the end of last week. The 10-year broke above a duel ceiling comprised of the 200-day and 25-day Moving Averages. The next level of resistance is up at the 50-day Moving Average.

Monday Market Update – 12/20/2021

Week of December 13, 2021 in Review

Inflation continues to climb while the demand for homes has helped builders remain confident. Plus, the Fed’s meeting brought important updates!

Annual wholesale inflation reached its highest level in 41 years, as the Producer Price Index (PPI) rose 0.8% in November and increased from 8.6% to 9.6% on a year over year basis. Core PPI, which strips out volatile food and energy prices, rose 0.7% in November while the year over year rate increased to 7.7%, up from an already hot 6.8%. Wholesale inflation continues to move higher, which can lead to hotter consumer inflation levels if producers pass those higher costs along to consumers.

Inflation also seemed to impact Retail Sales in November, which rose a modest 0.3% after the 1.8% gain seen in October. However, consumer demand remains strong, as sales were 18.2% higher than November of last year. Low unemployment, rising wages and savings from stimulus payments have enabled spending. Plus, some of the slowness in November’s sales may also be due in part to consumers shopping for the holidays early to avoid empty shelves.

In housing news, builder confidence rose for the fourth month in a row per the National Association of Home Builders Housing Market Index. This near real-time read on builder confidence increased 1 point to 84 in December, tying the highest reading of the year that was previously recorded in February. Despite inflation concerns and ongoing production bottlenecks that builders are facing, confidence has risen in recent months due to the continued high demand for homes around the country.

And there was some good news regarding construction in November. Housing Starts, which measure the start of construction on homes, rose by almost 12% and even more importantly, starts for single-family homes were also up 11.3%. Building Permits, which are a good forward-looking indicator for Housing Starts, also increased. However, one of the biggest takeaways is that the backlog of homes continues to grow. Homes authorized but not yet started increased by 1.5% in November and they were up 46% year over year.

Jobless Claims continue to hover near pre-pandemic levels. There are now just under 2.5 million people in total receiving benefits, which is a healthy number and in stark contrast to the 20 million plus seen last year.

Also of note, manufacturing activity in the New York region remained strong this month, as the Empire State Index rose 1 point to 31.9. This was above the expected reading of 25. However, the Philadelphia Fed Index showed that manufacturing activity in that region fell to 15.4 in December from 39 in November, coming in much lower than expectations amid elevated inflation. However, any reading over zero on both indexes indicates improving conditions.

Lastly, the Fed held their two-day Federal Open Market Committee meeting and made some important announcements about tapering and inflation. Read on for more details about this.

Wholesale Inflation Reaches 41-Year High

The Producer Price Index (PPI), which measures inflation on the wholesale level, rose 0.8% in November and increased from 8.6% to 9.6% on a year over year basis. This is the highest level in 41 years!

Core PPI, which strips out volatile food and energy prices, rose 0.7% in November. The year over year rate increased to 7.7%, up from an already hot 6.8%.

There are no signs of producer prices easing, which often leads to hotter consumer inflation levels, as producers pass those higher costs along to consumers.

Remember, inflation is the arch enemy of fixed investments like Mortgage Bonds because it erodes the buying power of a Bond’s fixed rate of return. If inflation is rising, investors demand a rate of return to combat the faster pace of erosion due to inflation, causing interest rates to rise. Though many factors influence the markets, keeping an eye on inflation remains critical.

On a related note, the National Federation of Independent Business Small Business Optimism Index rose slightly in November. But the important components within the report showed that current and future compensations plans held at record highs and plans for higher prices rose to the highest level since 1979. This makes sense with the significant increase in producer prices and sounds like more inflation may be on the horizon.

In addition, the Cass Freight Index showed that shipping costs rose to a new record high, up 8% in November and 44% year over year. From an inflation standpoint, we are continuing to see supply chain disruptions, causing higher prices and contributing to higher goods.

Fed Changes Taper Plan

Back in November, the Fed announced that they would begin tapering, or reducing, their purchases of Mortgage Backed Securities (also referred to as Mortgage Bonds or MBS) and Treasuries starting by $15 billion dollars a month. These purchases that began during the pandemic have been ongoing to help stabilize the markets and have helped keep home loan rates low.

However, after last week’s meeting, the Fed announced that they would be doubling the size of their taper of Mortgage Bonds from $15 billion a month to $30 billion a month.

Why did they do this?

The Fed has made it clear that they don’t want to make any hikes to their benchmark Fed Funds Rate and taper at the same time. Note that the Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates.

So, the sooner that the Fed can be done with tapering their outright purchases (i.e. bring them down to zero), that’s when they can begin to think about hiking their Fed Fuds Rate, which is the real tool the Fed has to help curb rising inflation.

Speaking of inflation, the Fed sharply raised their inflation forecasts for 2021 and 2022. They expect their favored measure, Personal Consumption Expenditures, to show inflation rising 5.3% this year, up from their previous forecast of 4.4%. Their forecast for 2022 has also grown from 2.3% to 2.6%.

Builder Confidence Rises for Fourth Consecutive Month

The National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence, rose 1 point to 84 in December, tying the highest reading of the year that was previously recorded in February.

Looking at the components of the index, current sales conditions rose 1 point to 90, sales expectations for the next six months were unchanged at 84, and buyer traffic rose 1 point to 70

Any reading over 50 on this index, which runs from 0 to 100, signals expansion. Despite inflation concerns and ongoing production bottlenecks that builders are facing, confidence has risen in recent months due to the continued high demand for homes around the country.

In fact, Lennar, one of the nation’s largest homebuilders, noted in a recent press release that, “Our record fourth quarter results reflect both continued strength in the housing market across the country, and continued housing supply shortage driven by limited entitled land, labor and supply chain constraints, and 10 years of production shortfall.”

This ongoing dynamic of high demand and tight supply is supportive of home prices.

November Housing Starts Rise But Backlog Remains

Housing Starts, which measure the start of construction on homes, rose by almost 12% in November to an annualized pace of 1.679 million homes. This is 8.3% higher than November of last year.

Starts for single-family homes, which are in such high demand among buyers, were also up 11.3% from October to November. Yet, they are still nearly 1% lower than they were in November of last year.

Building Permits, which are a good forward-looking indicator for Housing Starts, rose by 3.6% and they were also up almost 1% year over year. Single-family permits also ticked higher by 2.7%, but they are still down 4.5% annually.

One of the biggest takeaways is that the backlog of homes continues to grow and speaks to the difficulty builders have experienced in completing homes. Homes authorized but not yet started increased by 1.5% in November and they were up 46% year over year.

Jobless Claims Returning to Pre-Pandemic Levels

The number of people filing for unemployment benefits for the first time increased by 18,000 in the latest week, with Initial Jobless Claims reported at 206,000. However, this figure is coming off the lowest reading in 52 years, so the bounce higher is understandable.

Continuing Claims, which measures individuals who continue to receive benefits, decreased by 154,000 to 1.85 million, once again reaching a pandemic-era low.

There are now just under 2.5 million people in total receiving benefits, which is a healthy number and in stark contrast to the 20 million plus seen last year. It also reflects that employers are having a hard time finding new workers and are reducing their pace of firings.

What to Look for This Week

There will be plenty of news for investors to feast on ahead of the market closures on Friday in celebration of the Christmas holiday. On Wednesday, we’ll get the final reading on third quarter GDP, along with November’s Existing Home Sales and Consumer Confidence for this month.

On Thursday look for November’s readings on New Home Sales, Durable Goods Orders, Personal Income, Personal Spending and the Fed’s favored inflation measure, Personal Consumption Expenditures. The latest Jobless Claims figures will also be reported, along with the Consumer Sentiment Index for December.

Investors will also be closely watching Tuesday’s 20-year Bond auction to see the level of demand.

Technical Picture

Mortgage Bonds tested the ceiling at their 50-day Moving Average last Friday but were rejected, which led to a sharp move lower beneath their 25-day Moving Average. The 10-year has broken beneath its 100-day Moving Average and ended last week trading between it and the next floor at 1.37%.

Monday Market Update – 12/13/2021

Week of December 6, 2021 in Review

Inflation, home prices and rents are all on the rise, while Initial Jobless Claims hit their lowest level since 1969.

The Consumer Price Index (CPI) showed that consumer inflation rose by 0.8% in November while the year over year reading shot up from 6.2% to 6.8%! Core CPI, which strips out volatile food and energy prices, also rose on a monthly and annual basis. Rising inflation is always critical to monitor because it can have a big impact on Mortgage Bonds and home loan rates, which are tied to them. Read more about this below.

In housing news, CoreLogic’s Home Price Index report for October showed that home prices rose 1.3% from September and 18% year over year. This annual gain is unchanged from the previous report.

Rental prices were also on the rise, with Apartment List’s National Rent Report showing a 0.1% increase in November. While this is the lowest month-over-month growth rate of the year, rents have increased almost 18% year to date. To put this in perspective, rent growth from January to November averaged just 2.6% in the pre-pandemic years from 2017-2019.

The number of people filing for unemployment benefits for the first time fell by 43,000 in the latest week, as Initial Jobless Claims were reported at 184,000. This is the lowest reading in 52 years! Continuing Claims, which measures individuals who continue to receive benefits, increased by 38,000 to 1.992 million, coming off a pandemic-era low. There are now 1.95 million people in total receiving benefits, which is a healthy number and in stark contrast to the 20 million plus seen last year.

Meanwhile, job openings remain high as the October JOLTS (Job Openings and Labor Turnover) report showed that there were 11 million job openings in October. This is up from the 10.6 million reported in September and is just slightly below the record high of almost 11.1 million seen in July. The number of people quitting their job was reported at 4.16 million, off the September level of 4.36 million and a rate of 2.8%. The data is not surprising, as many companies have expressed a need for more workers.

Lastly, investors were closely watching Wednesday’s 10-year Treasury Note auction and Thursday’s 30-year Bond auction to see the level of demand. High demand, which is reflected in the purchasing of Bonds and Treasuries, can push prices higher and yields or rates lower. Weak demand, on the other hand, can signal that investors think yields will continue to move higher, which can have a negative effect on rates.

Wednesday’s 10-year Treasury Note auction was met with about average demand and there was not much market reaction. Thursday’s 30-year Bond auction was met with weak demand. After an initial move lower, Bonds shook off the news. Neither auction had much of an impact on trading last week.

Consumer Inflation Hotter Than Expected

The Consumer Price Index (CPI), which measures inflation on the consumer level, rose by 0.8% in November. This was hotter than expectations and pushed the year over year reading significantly higher from 6.2% to 6.8%!

Core CPI, which strips out volatile food and energy prices, rose by 0.5%. While this was in line with expectations, the reading did cause year over year Core CPI to jump from 4.6% to 4.9%.

Within the report, rents rose 0.5% in November and increased from 2.7% to 3% on a year over year basis. However, the CPI report is still not capturing the increases we are seeing in many other rent reports that are showing double digit increases year over year, such as the latest Apartment List report detailed below. We may see some catch up in this CPI data in future months but for now the reporting continues to be dragged down by their methodology.

Also of note, owners’ equivalent rent also increased 0.5% in November and the year over year figure rose from 3.1% to 3.5%.

Remember, inflation is the arch enemy of fixed investments like Mortgage Bonds because it erodes the buying power of a Bond’s fixed rate of return. If inflation is rising, investors demand a rate of return to combat the faster pace of erosion due to inflation, causing interest rates to rise. Though many factors influence the markets, keeping an eye on inflation remains critical.

The Latest on Home and Rental Prices

CoreLogic released their Home Price Index report for October, showing that home prices rose by 1.3% from September and 18% year over year. This annual gain is unchanged from the previous report. Detached homes appreciated at an even higher pace of 19.5% year over year.

The unchanged 18% annual figure for October follows suit with recent appreciation data released by both Case-Shiller and the Federal Housing Finance Agency, which seem to reflect that we’ve reached the maximum year over year gains. Note this does not mean that home prices are going to decline. It simply means we may see slower month over month gains and that home prices may rise at a more modest pace.

Within the report, the hottest markets were Phoenix (+31%), Las Vegas (+24%), and

San Diego (+22%).

CoreLogic forecasts that home prices will appreciate 0.2% in November and 2.5% in the year going forward. Yet, they remain conservative in their forecasting and continue to miss on the low side. For example, CoreLogic had forecasted prices for October would rise by 0.1% from September and they actually increased by 1.3%.

Even though CoreLogic only forecasts a 2.5% gain in home prices over the next year, they are certainly the outlier compared to other forecasts. Goldman Sachs expects 16% gains, Zillow anticipates 14%, and Fannie Mae sees prices rising by roughly 7.5%. Mid to high single digit appreciation is definitely attainable and is still very meaningful for wealth creation. For example, a $400,000 home that appreciated by 8% would result in $32,000 in appreciation gain in just one year.

CoreLogic also conducted a consumer survey, which showed that over half of respondents across every age cohort said that owning a home has always been a goal of theirs. This further supports the outlook that consumer desire for homeownership remains.

Apartment List also released their National Rent Report which showed that rents increased 0.1% in November. While this is the lowest month-over-month growth rate of the year, rents have increased almost 18% year to date. To put this in perspective, rent growth from January to November averaged just 2.6% in the pre-pandemic years from 2017-2019. Although low inventory around the country has made buying a home challenging for many people, renting is not a better option.

Initial Jobless Claims Hit Their Lowest Level Since 1969

Initial Jobless Claims fell by 43,000 in the latest week, as the number of people filing for unemployment benefits for the first time was reported at 184,000. This is the lowest reading in 52 years!

Continuing Claims, which measures individuals who continue to receive benefits, increased by 38,000 to 1.992 million, coming off a pandemic-era low.

There are now 1.95 million people in total receiving benefits, which is a healthy number and in stark contrast to the 20 million plus seen last year.

The October JOLTS (Job Openings and Labor Turnover) report was also released, showing that there were 11 million job openings in October. This is up from the 10.6 million reported in September and is just slightly below the record high of almost 11.1 million seen in July. Some of the areas with the highest job openings, which you would expect to see, include leisure and hospitality (1.78 million), manufacturing (1 million), construction (410,000) and transportation (611,000).

The number of people quitting their job was reported at 4.16 million, off the September level of 4.36 million and a rate of 2.8%. This is still elevated but lower than the record high of 3%. The data is not surprising, as many companies have expressed a need for more workers.

In addition, the low participation rate that we are experiencing in the labor force has led to the increase in wages that we have seen. This trend looks to continue and should add to inflation from wage pressures.

What to Look for This Week

More inflation news follows this week on Tuesday when the Producer Price Index for November will give us a read on wholesale inflation. Also on Tuesday, we’ll see how small business owners were feeling last month when the National Federation of Independent Business Small Business Optimism Index is reported.

Wednesday brings a range of reports, including November’s Retail Sales, December’s Empire State Index (which gives us manufacturing news for the New York region) and December’s National Association of Home Builders Housing Market Index (which is a near real-time read on builder confidence).

The Fed’s two-day meeting will also conclude on Wednesday with the release of their Monetary Policy Statement, which always has the potential to move the markets.

On Thursday, the latest Jobless Claims data will be released as usual, along with an update on Housing Starts and Building Permits for November and regional manufacturing news via the Philadelphia Fed Index for December.

Technical Picture

After falling 30bp Friday morning, Mortgage Bonds rebounded and ended last week above the 101.79 support level. If Bonds can remain above this floor, there is room to the upside until reaching the ceiling at 102.117. The 10-year is still testing its 200-day Moving Average, which is a pivotal level. Whichever way it breaks will likely dictate the direction in the coming week.

Monday Market Update – 12/06/2021

Week of November 29, 2021 in Review

There were some mixed messages regarding November job creations while home prices continued to rise in October. Plus, the new Omicron COVID variant and Fed chatter regarding inflation led to volatility in the markets.

Economists were anticipating 550,000 job creations in November, but job growth came in far short of these expectations per the Bureau of Labor Statistics (BLS), which reported 210,000 new jobs. However, there were positive revisions to the figures for September and October adding 82,000 new jobs in those months combined, which made up for some of the miss. In addition, there are important caveats to understand about this data, as explained below.

On the flip side, private sector payrolls came in strong in November, with the ADP Employment Report showing that there were 534,000 jobs created. Both goods-producing and service-providing sector companies showed gains, with services contributing the majority share at 424,000 jobs. Job gains were also reported across all sizes of businesses.

Jobless Claims continue to trend in the right direction, coming in at levels seen prior to the pandemic. Though the number of first-time filers moved higher by 28,000 in the latest week to 222,000, this figure is coming off the lowest reading for Initial Jobless Claims in 50 years, so the bounce higher was expected. Continuing Claims decreased by 107,000 to 1.956 million, hitting a new pandemic-era low. There are now 2.3 million people in total receiving benefits, which is a healthy number and in stark contrast to the 20 million plus seen last year.

In housing news, Pending Home Sales, which measures signed contracts on existing homes, rose 7.5% in October, coming in above expectations. The National Association of Realtors chief economist, Lawrence Yun, stated, “This solid buying is a testament to demand still being relatively high, as it is occurring during a time when inventory is still markedly low.”

This dynamic of strong demand and low inventory around the country continues to help home prices appreciate. The Case-Shiller Home Price Index showed that home prices rose 1% in September and 19.5% year over year. The Federal Housing Finance Agency (FHFA), which measures home price appreciation on single-family homes with conforming loan amounts, reported that home prices rose 0.9% in September and they were also up 17.7% year over year. While these are certainly still strong levels of appreciation, there are signs that the pace of appreciation may be moderating, as noted below.

The news of the new Omicron COVID variant, with the first cases confirmed in the US, led to ongoing volatility in the markets last week due to the unknowns regarding the number of mutations and risk of reinfection. The Fed also made headlines, as Fed Chair Jerome Powell retired the word “transitory” in regard to inflation, testifying before Congress that the risks of inflation have now increased. He also said that inflation pressures will linger well into next year.

Remember, inflation is the arch enemy of fixed investments like Mortgage Bonds because it erodes the buying power of a Bond’s fixed rate of return. If inflation is rising, investors demand a rate of return to combat the faster pace of erosion due to inflation, causing interest rates to rise. Though many factors influence the markets, it’s always important to keep an eye on inflation.

Mixed Messages From November Jobs Report

The Bureau of Labor Statistics (BLS) reported that there were 210,000 jobs created in November, which was much weaker than the 550,000 new jobs that were expected. However, there were positive revisions to the figures for September and October adding 82,000 new jobs in those months combined, which makes up for some of the miss.

Yet this was a tale of two reports, as there are two surveys within the Jobs Report and there is a fundamental difference between them. First, the Business Survey is where the headline job number comes from and it’s based predominately on modeling. Part of this modeling is the birth-death ratio that factors in the birth of new businesses and the death of businesses, adding or removing the typical number of jobs in those types of businesses when performing the calculations. However, this methodology may be a bit more flawed in today’s market because people are returning to positions that were vacated during the pandemic, so it’s less about new businesses being created and more about new jobs being created.

The Household Survey, where the Unemployment Rate comes from, is done by actual phone calls to 60,000 homes. The Household Survey also has a job loss or creation component, and it showed there were 1.14 million job creations, while the labor force increased by almost 600,000. The number of unemployed people decreased by 542,000, causing the Unemployment Rate to fall from 4.6% to 4.2%.

The labor force participation rate did move a little higher from 61.6% to 61.8%, but it remains near a 50-year low.

In addition, it’s important to note that there has been a lingering misclassification error where people were classified absent from work for other reasons and not marked as unemployed on temporary layoff when they should have been. When we factor this into the calculations, the Unemployment Rate should have been around 0.1% higher at around 4.3%.

The U-6 all-in unemployment rate improved from 8.3% to 7.8% and is more indicative of the true unemployment rate.

Average hourly earnings and average weekly earnings were both up roughly 5% year over year. Wage growth is running even hotter if you annualized the pace over the last 6 months.

November Private Payrolls Meet Expectations

The ADP Employment Report, which measures private sector payrolls, showed that there were 534,000 jobs created in November, which was in line with expectations. October’s figures were revised slightly lower by 1,000 to 570,000 new jobs in that month.

Both goods-producing and service-providing sector companies showed gains, with services contributing the majority share at 424,000 jobs. Leisure and hospitality saw the most job gains with 136,000, followed by professional and business at 110,000, and trade, transportation, and utilities at 78,000. On the goods-producing side, construction also showed strong gains at 52,000.

Job gains were reported across all sizes of businesses, with the majority of those reported at large businesses. Small businesses (1-49 employees) gained 115,000 jobs, mid-sized businesses (50-499 employees) gained 142,000 jobs, and large businesses (500 or more employees) gained 277,000 jobs.

The bottom line is that of the 19.6 million private sector jobs lost in March and April 2020, we’ve since recovered about 15 million of them.

Jobless Claims Reflect Pre-Pandemic Levels

The number of people filing for unemployment benefits for the first time increased by 28,000 in the latest week, with Initial Jobless Claims reported at 222,000. However, this figure is coming off the lowest reading in 50 years, so the bounce higher was expected.

Continuing Claims, which measures individuals who continue to receive benefits, decreased by 107,000 to 1.956 million, once again reaching a pandemic-era low.

There are now 2.3 million people in total receiving benefits, which is a healthy number and in stark contrast to the 20 million plus seen last year.

Pending Home Sales Beat Expectations

Pending Home Sales, which measures signed contracts on existing homes, came in much stronger than expectations, rising 7.5% in October. Sales are now down 1.4% year over year, which is quite impressive considering the lack of inventory, tough comparisons to last year’s market due to the pandemic, and the fact that rates have risen.

The National Association of Realtors chief economist, Lawrence Yun, stated, “Motivated by fast-rising rents and the anticipated increase in mortgage rates, consumers that are on strong financial footing are signing contracts to purchase a home sooner rather than later.” He added, “This solid buying is a testament to demand still being relatively high, as it is occurring during a time when inventory is still markedly low.”

Home Price Appreciation Slows But Remains Strong

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices rose 1% in September and 19.5% year over year. This annual reading was slightly lower than the 20% rise reported for August.

While home price appreciation is expected to continue, this slowing in the annual reading could suggest that the pace of appreciation is beginning to slow. Note that this does not mean that home prices will drop. It simply means that they may rise at a more modest pace.

The 20-city index also rose 0.8% in September and 19.1% year over year. Phoenix (+33.1%), Tampa (+27.7%) and Miami (+25.2%) reported the highest annual gains.

The Federal Housing Finance Agency (FHFA) released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. While you can have a million-dollar home with a conforming loan amount, the report most likely represents lower-priced homes, where supply has been tight and demand strong.

Home prices rose 0.9% in September and they were also up 17.7% year over year, which is down from the 18.5% annual gain reported for August. Again, we are still seeing home prices rise, but at a slightly slower pace.

What to Look for This Week

The economic calendar is quiet this week, with the biggest news coming Friday when November’s Consumer Price Index report will give us an update on inflation. Also of note, the JOLTS (Job Openings and Labor Turnover Survey) for October will be released on Wednesday while the latest Jobless Claims data will be reported on Thursday.

Investors will also be closely watching Wednesday’s 10-year Note and Thursday’s 30-year Bond auctions for the level of demand.

Technical Picture

Mortgage Bonds ended last week near their 25-day Moving Average. If they are able to convincingly break above it, the next point of resistance is a dual ceiling formed by the 38.2% Fibonacci level at 102.68 and the 50-day Moving Average.

The 10-year has fallen sharply, breaking through support at the 100-day Moving Average and 38.2% Fibonacci level. There may be some modest support in the 1.25% to 1.3% range, with the next concrete floor of support being the 50% Fibonacci level at 1.188%.

Monday Market Update – 11/29/2021

Week of November 22, 2021 in Review

A full serving of news on inflation, housing and the economy was reported ahead of Thanksgiving, with plenty of headlines for the markets to feast on.

The Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE), showed that consumer inflation rose 0.6% in October. Year over year, the index increased from 4.4% to 5%, which is the hottest reading in over 30 years! Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.4% in October while the year over year reading increased from 3.7% to 4.1%.

Rising inflation is always critical to monitor because it can have a big impact on Mortgage Bonds and home loan rates, which are tied to them. Don’t miss our analysis below about what may be ahead for inflation.

On a related note, with oil prices at seven-year highs, President Biden announced that the Department of Energy will release 50 million barrels of oil from the Strategic Petroleum Reserve in an attempt to push oil prices lower. This was a coordinated effort with other countries, and we should see the impact on oil prices over the coming months.

In housing news, sales of existing homes ticked up nearly 1% from September to October to an annual pace of 6.34 million units. This follows a large jump in sales in September. However, on an annual basis, sales are nearly 6% lower than they were in October of last year. The lack of homes for sale continues to remain a challenge around the country, as inventory declined almost 1% to 1.25 million homes for sale at the end of October.

New Home Sales, which measure signed contracts on new homes, were also up 0.4% in October at a 745,000 annualized pace. However, this headline number does not tell the whole story, as explained below.

Initial Jobless Claims also made headlines, with the number of people filing for unemployment benefits for the first time falling by 71,000 to 199,000 in the latest week. Not only is this a pandemic-era low, it’s also the lowest level in 50 years! There are now 2.4 million people in total receiving benefits, which is down 752,000 from the previous week.

Also of note, the second reading of Gross Domestic Product (GDP) for the third quarter showed a slight revision higher from 2% to 2.1%, though this is still pretty anemic considering all of the stimulus.

Lastly, President Biden has confirmed that Jerome Powell will be re-nominated as Chair of the Federal Reserve for another term.

Annual Inflation Hits a 30-Year High

The Fed’s favorite measure of inflation, Personal Consumption Expenditures, showed that headline inflation rose 0.6% in October. Year over year, the index increased from 4.4% to 5%, which is the hottest reading in over 30 years.

Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.4% in October. The year over year reading increased from 3.7% to 4.1%.

Remember that the year over year figures are on a 12-month rolling basis. This means that in last week’s report, the October 2020 reading of 0% for Core PCE was replaced with the 0.4% that was just reported for October 2021. This is why the year over year figure jumped significantly.

When we look ahead to the next report, which will be released on December 23 with data for November, we will be replacing another reading of 0% for Core PCE from November 2020. This means we may continue to see the PCE climb sharply.

Why is this important?

Remember, inflation is the arch enemy of fixed investments like Mortgage Bonds because it erodes the buying power of a Bond’s fixed rate of return. If inflation is rising, investors demand a rate of return to combat the faster pace of erosion due to inflation, causing interest rates to rise. This is why keeping an eye on inflation remains critical.

It’s also worth noting that the PCE is a poor measure of inflation because it has a low weighting towards housing and out of pocket medical expenses, both of which are very important to consumers. Real inflation is likely higher than what is reflected in this latest report.

Also of note, private sector wages are up 11% year over year, which speaks to the wage pressured inflation we are seeing from companies that are having to pay more to retain and hire workers.

Existing Home Sales Rise for Second Consecutive Month

Existing Home Sales, which measure closings on existing homes, inched up nearly 1% from September to October to an annual pace of 6.34 million units. This follows a large jump in sales in September. However, on an annual basis, sales are nearly 6% lower than they were in October of last year.

The lack of homes for sale continues to remain a challenge around the country, as inventory declined almost 1% to 1.25 million homes for sale at the end of October. This represents just a 2.4 months’ supply of homes at the current sales pace. Inventory is also 12% lower when compared to October of last year.

The median home price was reported at $353,900, which is up 13.1% year over year. Remember that the median home price is not the same as appreciation. It simply means half the homes sold were above that price and half were below it. Home sales under $250,000 fell 24% year over year, while sales of homes above $750,000 rose about 30%, which caused the median home price to rise.

First-time home buyers have accounted for 29% of sales, which is up from 28% in September. Cash buyers increased to 24% from 23%, while investors purchased 17% of homes, which was up sharply from 13% in September.

Digging Into New Home Sales Data

New Home Sales, which measure signed contracts on new homes, were up 0.4% in October at a 745,000 annualized pace. However, this headline number does not tell the whole story.

Sales in September were revised lower from 800,000 to 742,000. When factoring in this revision, New Home Sales are really down 6.8% from the originally reported number in September. But there was a big surge in sales in September from August (where there were 693,000 homes sold at an annualized pace). So, even though sales in October were just modestly higher than they were in September, they were up 7.5% from August.

Year over year, sales were down 23.1% but from 2019 they are up 6%. The year over year comparisons to 2020 are tough because of the abnormalities in the market during the pandemic last year.

The median home price came in at $407,700. Again, this is not the same as appreciation. It simply means half the homes sold were above that price and half were below it.

Initial Jobless Claims Reach Lowest Level in 50 Years!

The number of people filing for unemployment benefits for the first time fell by 71,000 to 199,000 in the latest week. Not only is this a pandemic-era low, it’s also the lowest level since November 1969.

California (+53K), Virginia (+18K) and Texas (+15K) reported the largest number of claims.

Continuing Claims, which measure individuals who continue to receive benefits, also hit a pandemic-era low, falling 60,000 to 2.049 million.

There are now 2.4 million people in total receiving benefits, which is down 752,000 from the previous week and more reflective of numbers prior to the pandemic.

What to Look for This Week

This week kicks off with important housing news via October’s Pending Home Sales on Monday while Tuesday brings an update on home price appreciation for September when Case-Shiller’s Home Price Index and the Federal Housing Finance Agency’s House Price Index are reported.

Important manufacturing updates for November will also be reported, first on Tuesday with the Chicago PMI and then on Wednesday with the ISM Index.

Then the rest of the week will be centered on important labor sector news, beginning Wednesday when the ADP Employment Report will give us an update on private payrolls for November. Thursday brings the latest Initial Jobless Claims data. Then ending the week on Friday, the highly anticipated Bureau of Labor Statistics Jobs Report for November will be released, which includes Non-farm Payrolls and the Unemployment Rate.

Technical Picture

Mortgage Bonds rebounded sharply last Friday, breaking above the ceiling of resistance at 101.79 and moving higher to end the week just above their next ceiling at the 25-day Moving Average. The 10-year fell below floors of support at its 25-day and 50-day Moving Averages, ending the week testing the next floor at its 200-day Moving Average.

Monday Market Update – 11/22/2021

Week of November 15, 2021 in Review

The high demand for homes around the country has helped homebuilders remain confident, despite ongoing supply, labor and lot shortages. Meanwhile, rents continue to rise.

Home construction was certainly impacted in October by the aforementioned shortages, as Housing Starts fell 0.7% from September. More importantly, starts for single-family homes declined 3.9% and they were also down almost 11% year over year.

Building Permits, which are a good forward-looking indicator of construction, were up 4% in October. Permits for single-family homes rose 2.7% in October but they were down 6.3% year over year.

Yet, builders remain confident due in large part to the high demand for homes around the country. The National Association of Home Builders (NAHB) Housing Market Index, which is a real-time read on builder confidence, rose 3 points to 83 in November. This is the largest monthly increase since February and marks three consecutive months of increases. Any reading over 50 on this index, which runs from 0 to 100, signals expansion.

Consumer confidence fell to the lowest level in 10 years this month, per the University of Michigan’s Consumer Sentiment Index. Of note, those who said it’s a good time to buy a home declined to the lowest level since 1982. However, while it may not be an easy time to buy a home, demand for homes remains strong, especially given the increases in rent that have been reported.

CoreLogic released their single-family rental index, showing that rents are up over 10% year-over-year to the highest reading in 16 years. Attached rentals were up almost 8%, while detached and with more space were up over 12%.

There was some good news from the labor sector, as Initial and Continuing Jobless Claims both declined in the latest week, to 268,000 and 2.08 million respectively. This data represents new pandemic-era lows. Yet, even with this decline in people filing for unemployment benefits, job openings remain extremely elevated, as highlighted below.

Despite the rise in inflation we have seen, there were strong reports from the manufacturing sector. The Empire State Index, which shows the health of manufacturing in the New York region, came in above expectations in November while the Philadelphia Fed Index surged to a 7-month high. Retailers also had reason to smile as Retail Sales beat expectations in October, up 1.7% from September, even in the face of higher prices for many items. 

Lastly, President Biden signed a $1.2 trillion bipartisan infrastructure bill into law, which includes $550 billion in new spending on our nation’s roads, bridges, ports, water and rail. It also provides $65 billion to expand broadband infrastructure and $55 billion for clearwater investments. Unlike other bills, this bill will go into effect over the next 5 years rather than all at once.

Builder Confidence Increases for Third Month In a Row

The National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence, rose 3 points to 83 in November. This is the largest monthly increase since February and marks three consecutive months of increases.

Looking at the components of the index, current sales conditions rose 3 points to 89, sales expectations for the next six months were unchanged at 84, and buyer traffic rose 3 points to 68

Any reading over 50 on this index, which runs from 0 to 100, signals expansion. Despite the supply-side challenges and lot and labor shortages builders are facing, confidence has risen this fall due to the continued high demand for homes around the country.

Decline in Housing Starts Hurts Already Low Inventory

Housing Starts, which measure the start of construction on homes, fell once again in October, as they were reported down 0.7% at a 1.53 million unit annualized pace. Starts were nearly flat compared to October of last year, up just 0.4%.

Starts for single-family homes, which are in such high demand, also declined 3.9% from September to a 1.04 million unit pace. They were also down almost 11% year over year. The only area that saw an increase in Starts was in buildings with 5 or more units.

The previously mentioned supply, labor and lot shortages are hindering builders from completing the level of homes needed to help with the inventory shortages many buyers have experienced around the country. This should continue to contribute to a tight inventory landscape into the foreseeable future.

There was some better news regarding future construction, as Building Permits (which are a good forward-looking indicator of future supply) were up 4% from September to October and 3.4% versus October of last year. Permits for single-family homes rose 2.7% in October but they were down 6.3% year over year.

Housing units that are authorized but not started continue to rise, showing that the backlog of homes is growing, unfortunately. It grew almost 5% in October to 265,000 units not started and this category is now up almost 45% compared to October of last year.

Jobless Claims Hit New Pandemic-Era Lows

The number of people filing for unemployment benefits for the first time fell by 1,000 in the latest week, as Initial Jobless Claims dropped from 269,000 to 268,000. Continuing Claims, which measures individuals who continue to receive benefits, decreased by 129,000 to 2.08 million. Both of these figures are at pandemic-era lows and also at levels that were more normal prior to the pandemic.

Despite the decline in jobless claims, job openings remain at elevated levels. The Jolts (Job Openings and Labor Turnover) survey showed there were 10.4 million job openings at the end of September. While this is a decline from the levels reported at the end of July and August, the bottom line is that record levels of people are quitting their jobs. In September, 164,000 people quit their jobs, bringing the total to an all-time high of 4.434 million over the last 12 months. This is up 34% year over year.

On a related note, the Atlanta Fed’s wage growth tracker showed that wages are up 4.1% year over year in October, which is near the highest level in 13 years. Remember, wage-pressured inflation like this tends to be much stickier.

A Note About Consumer Confidence and Rents

Consumer confidence fell to the lowest level in 10 years this month, per the University of Michigan’s Consumer Sentiment Index. Inflation is surging, reducing living standards, and those surveyed don’t think that the Fed’s policy is doing anything to help.

Of note, those who said it’s a good time to buy a vehicle fell to the lowest level since 1978 while those wanting to buy a major household item fell to the lowest reading since 1980.

As for those who said it’s a good time to buy a home, that declined to the lowest level since 1982. However, while it may not be an easy time to buy a home, demand for homes remains strong, especially given the increases in rent that have been reported.

CoreLogic released their single-family rental index, showing that rents are up over 10% year-over-year to the highest reading in 16 years. Attached rentals were up almost 8%, while detached and with more space were up over 12%.

While this headline figure is elevated, it is lower than Apartment List’s reading that rents are up 16.4% year-to-date. Note that the main difference between these reports is that CoreLogic takes all rents including renewals into account, while Apartment List’s calculation just factors in new rents.

In both cases, these metrics are much higher than October’s Consumer Price Index rental component, which showed only a 2.7% increase. It just goes to show how understated inflation is within the CPI, as its rental component is out of touch with every other metric.

What to Look for This Week

The week kicks off with more housing news on Monday when October’s Existing Home Sales are reported.

Then, a cornucopia of reports will be released on Wednesday ahead of the Thanksgiving holiday, including the latest Jobless Claims figures, the second reading on third quarter GDP, and October readings for Durable Goods, New Home Sales, Personal Income, Personal Spending, and Personal Consumption Expenditures, the latter of which will provide a crucial update on the Fed’s favored inflation measure.

The markets will be closed on Thursday in celebration of Thanksgiving. They will also be closing early on Friday.

Technical Picture

Mortgage Bonds made some initial gains last Friday morning after the news of COVID-related lockdowns in parts of Europe, but they were subsequently rejected by the ceiling at their 25-day Moving Average. They ended last week in a wide range, with the aforementioned ceiling at the 25-day Moving Average and the next level of support down at 102.156. The 10-year has moved lower to around 1.54% and ended the week trading in a range between resistance at the 25-day Moving Average and a floor of support at the 50-day Moving Average at 1.50%.

Monday Market Update – 11/15/2021

Week of November 8, 2021 in Review

Fall has ushered in cooler temperatures and hotter inflation, which is having an impact on households around the country and confidence among small business owners.

Consumer inflation as measured by the Consumer Price Index (CPI) rose by 0.9% in October while the year over year reading shot up from 5.4% to 6.2%. Core CPI, which strips out volatile food and energy prices, also rose on a monthly and annual basis. In addition, the report showed that rents are on the rise, but there is an important caveat to this data, as explained below.

Wholesale inflation remains at record high levels per the Producer Price Index (PPI), which rose 0.6% in October and 8.6% on a year over year basis. The annual reading ties the record level that was set in September. Core PPI, which again strips out volatile food and energy prices, rose 0.4% in October and 6.8% on a year over year basis. Wholesale inflation continues to move higher, which can lead to hotter consumer inflation levels if producers pass those higher costs on to consumers.

On a related note, confidence among small business owners fell to the lowest level since February, as the National Federation of Independent Business Small Business Optimism Index dropped to 98.2 in October. Particularly noteworthy was that those expecting higher selling prices jumped 7 points to 53%, which is the highest in the 40-year history of this survey. This reading reflects a growing belief among those surveyed that the rise we’ve seen in inflation is not temporary, especially as supply chain issues persist.

Read on for more details about why rising inflation matters when it comes to Mortgage Bonds and the home loan rates tied to them.

The Jobless Claims picture continues to improve, with the number of Initial Jobless Claims falling 4,000 to 267,000. This is the lowest level of first-time filers since before the pandemic began. While the number of Continuing Claims did increase by 59,000 to 2.16 million, claims declined overall. There are now 2.57 million people in total receiving benefits, which is 107,000 fewer than the previous week. These numbers are beginning to resemble those that were reported before the pandemic began.

Lastly, investors were closely watching Tuesday’s 10-year Treasury Note auction and Wednesday’s 30-year Bond auction to see the level of demand. Find out the results below.

Consumer Inflation Hotter Than Anticipated

The Consumer Price Index (CPI), which measures inflation on the consumer level, rose by 0.9% in October, which was much higher than expectations of 0.6%. The year over year reading increased from 5.4% to 6.2%.

Core CPI, which strips out volatile food and energy prices, rose by 0.6%, which was also much higher than expectations. On a year over year basis, Core CPI jumped from 4% to 4.6%.

Within the report, rents rose 0.4% in October and 2.7% on a year over year basis, up from 2.4% in September. However, the CPI report is still not capturing the increases we are seeing in many other rent reports that are showing double digit increases year over year. We may see some catch up in this CPI data in future months but for now the reporting continues to be dragged down by their methodology.

Also of note, owners’ equivalent rent has increased to 3.1% year over year.

Inflation is critical to monitor because rising inflation reduces a Bond’s fixed rate of return. In other words, inflation can cause Mortgage Bonds to worsen or lose value and the home loan rates tied to them to rise. The high headline CPI reading certainly caused a reaction in the Bond markets for the worse when the data was released on Wednesday.

After its Federal Open Market Committee meeting earlier this month, the Fed said that inflation was elevated but “reflecting factors that are expected to be transitory. Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors.”

In essence, the Fed is hoping that supply chain bottlenecks ease, which will cause inflation to move lower. Though many factors influence the markets, monitoring inflation data in the months ahead remains crucial, especially as households around the country have been feeling the pressure of higher prices.

Annual Wholesale Inflation Remains at Record High

The Producer Price Index, which measures inflation on the wholesale level, rose 0.6% in October and 8.6% on a year over year basis. The annual reading was unchanged from September, matching the highest level on record.

Core PPI, which again strips out volatile food and energy prices, rose 0.4% in October and 6.8% on a year over year basis. This annual reading was also unchanged from September and is still extremely elevated.

Wholesale inflation continues to remain hot, which can lead to hotter consumer inflation levels if producers pass those higher costs along to consumers.

Initial Jobless Claims Reach a New Pandemic-Era Low

The number of people filing for unemployment benefits for the first time continues to decline, as Initial Jobless Claims fell 4,000 to 267,000, reaching the lowest reading since before the pandemic began.

Continuing Claims, which measures individuals who continue to receive benefits, did increase by 59,000 to 2.16 million.

There are now 2.57 million people in total receiving benefits, which is down 107,000 from the previous week. Despite the challenges in hiring workers that many businesses are facing, the jobless claims picture continues to improve, with the numbers starting to resemble the levels we saw prior to the pandemic.

Important Note and Bond Auctions Disappoint

Investors were closely watching Tuesday’s 10-year Treasury Note auction and Wednesday’s 30-year Bond auction to see the level of demand. High demand, which is reflected in the purchasing of Bonds and Treasuries, can push prices higher and yields or rates lower.

Weak demand, on the other hand, can signal that investors think yields will continue to move higher, which can have a negative effect on rates.

Tuesday’s 10-Year Treasury Note Auction was met with below average demand. The bid to cover of 2.35 was below the one-year average of 2.46. Direct and indirect bidders took 84.8% of the auction compared to 80.6% in the previous 12.

Wednesday’s 30-Year Bond Auction was also met with weak demand. The bid to cover of 2.20 was below the one-year average of 2.33. Direct and indirect bidders took 74.8% of the auction compared to 82% in the previous 12. Part of the reason for the weak Bond auction is the higher inflation readings we have seen, which leads investors to believe rates will be higher in the future. And if that is the case, they don’t want to tie up their money for 30 years at the current yields.

What to Look for This Week

The week kicks off Monday with manufacturing news for the New York region when the Empire State Index for November is reported.

On Tuesday, Retail Sales data for October will be delivered. We’ll also get an update on how builders are feeling this month with the National Association of Home Builders Housing Market Index, which is a near real-time read on builder confidence.

More housing news follows on Wednesday when Housing Starts and Building Permits for October are released.

And on Thursday, the latest Jobless Claims figures will be reported along with more regional manufacturing news via November’s Philadelphia Fed Index.

Investors will also be keeping a close eye on the 20-year Bond auction coming on Wednesday.

Technical Picture

Mortgage Bonds ended the week battling with support at 102.266. If Bonds don’t remain above support, there is ample room to the downside, with the next support level at 101.969. The 10-year is trading at around 1.57% and is battling its 25-day Moving Average. If yields can break beneath their 25-day, there is room to improve and move lower until reaching the 50-day Moving Average at 1.48%.

Monday Market Update – 11/08/2021

Week of November 1, 2021 in Review

The first week of November was filled with headlines on job creations, home price appreciation and the Fed’s taper announcement.

Economists were anticipating 450,000 job creations in October, but job growth beat expectations last month per the Bureau of Labor Statistics, which reported 531,000 new jobs. There were also positive revisions to August and September adding 235,000 new jobs in those months combined, further strengthening this latest report. The Unemployment Rate declined from 4.8% to 4.6% and wages were on the rise. However, the labor force participation rate hit a 50-year low, which is likely not a surprise to many businesses who are struggling to hire workers this fall.

Private sector payrolls also came in stronger than expected in October, with the ADP Employment Report showing that there were 571,000 jobs created versus the 400,000 expected. This was a strong report even with September’s figures revised lower by 45,000 jobs. Both goods-producing and service-providing sector companies showed gains, with services contributing the majority share at 458,000 jobs. Job gains were also reported across all sizes of businesses.

Initial and Continuing Jobless Claims once again hit pandemic-era lows, as they were reported at 269,000 and 2.1 million respectively in the latest week. The number of people filing for unemployment is starting to resemble the levels we saw prior to the pandemic.

In housing news, CoreLogic’s Home Price Index report for September showed that home prices rose by 1.1% from August and 18% year over year, which is a 0.1% decrease from the 18.1% annual gain reported for August. Rental prices were also on the rise, with Apartment List’s November National Rent Report showing an 0.8% increase in rents. Rents are up 16.4% year to date while 35 of the nation’s 100 largest cities have seen rents jump by more than 20% since the start of the pandemic.

Last but certainly not least, the Fed announced that they will begin tapering their purchases of Mortgage Backed Securities and Treasuries, which have been ongoing to stabilize the markets. Don’t miss our important analysis below where we break down the numbers and explain what this really means.

Job Creations Stronger Than Anticipated in October

The Bureau of Labor Statistics (BLS) reported that there were 531,000 jobs created in October, which was stronger than the 450,000 new jobs that were expected. In addition, there were positive revisions to the figures for August and September adding 235,000 new jobs in those months combined, further strengthening October’s report.

Note that there are two reports within the Jobs Report and there is a fundamental difference between them. The Business Survey is where the headline job number comes from and it’s based predominately on modeling.

The Household Survey, where the Unemployment Rate comes from, is done by actual phone calls to 60,000 homes. The Household Survey also has a job loss or creation component, and it showed there were 359,000 job creations, while the labor force increased by 104,000. The number of unemployed people decreased by 255,000, causing the Unemployment Rate to fall from 4.8% to 4.6%.

Yet, despite the decline in the Unemployment Rate, the labor force participation rate was only at 61.6%, which is a 50-year low. So, while the job gains we saw in October are certainly positive, the labor force only increased by a little over 100,000 people, leaving employers wondering where workers are now.

In addition, it’s important to note that there has been a lingering misclassification error where people were classified absent from work for other reasons and not marked as unemployed on temporary layoff when they should have been. When we factor this into the calculations, the Unemployment Rate should have been around 0.1% higher at 4.7%. There are also 6 million people who have not looked for work in the last four weeks who are also not counted in the labor force or counted as unemployed.

Wages were on the rise. Average hourly earnings and average weekly earnings were both up roughly 5% year over year. Wage growth is running even hotter if you annualized the pace over the last 6 months. Leisure and hospitality earnings are up almost 12% year over year, but it appears that’s still not enough to attract the workers that are needed there.

October Private Payrolls Also Beat Expectations

The ADP Employment Report, which measures private sector payrolls, showed that there were 571,000 jobs created in October, which was stronger than expectations of 400,000 new jobs. While September’s figures were revised lower by 45,000 to 523,000 new jobs in that month, this was still a strong report.

Both goods-producing and service-providing sector companies showed gains, with services contributing the majority share at 458,000 jobs. Leisure and hospitality led the way with 185,000 job gains, followed by professional and business at 88,000, and trade, transportation, and utilities at 78,000. On the goods-producing side, construction also showed strong gains at 54,000.

Job gains were reported across all sizes of businesses, with the majority of those reported at large businesses. Small businesses (1-49 employees) gained 115,000 jobs, mid-sized businesses (50-499 employees) gained 114,000 jobs, and large businesses (500 or more employees) gained 342,000 jobs.

Jobless Claims Reach Pandemic-Era Low

The number of people filing for unemployment benefits for the first time declined once again in the latest week, as Initial Jobless Claims were down 14,000 to 269,000. This is the lowest reading since before the pandemic.

Continuing Claims, which measures people continuing to receive benefits, fell 134,000 to 2.1 million, which is also a pandemic-era low.

The federal COVID plans, including the Pandemic Unemployment Assistance and Emergency Claims, fell by nearly 4,000 combined, while claims for Extended Benefits increased by 27,000.

There are now 2.67 million people in total receiving benefits, which is down 158,000 from the previous week. Even though many job openings remain, the jobless claims picture continues to make significant improvements, with the numbers starting to resemble the levels we saw prior to the pandemic.

Breaking Down the Fed’s Monetary Policy Statement

The Fed held their regularly scheduled Federal Open Market Committee meeting and announced that they will begin tapering, or reducing, their purchases of Mortgage Backed Securities (also referred to as Mortgage Bonds or MBS) and Treasuries starting later this month. These purchases that began during the pandemic have been ongoing to help stabilize the markets and have helped keep home loan rates low.

While there is some fear that tapering may cause rates to rise, let’s analyze what all of this really means.

The Fed has been buying $120 billion each month, including $40 billion of Mortgage Bonds and $80 billion of Treasuries to inject liquidity into the markets and to keep long-term rates lower to promote borrowing and expansion. Last week, the Fed said that they would start reducing that amount by $15 billion in November and $15 billion in December. The breakdown is a $5 billion reduction in Mortgage Bonds and a $10 billion reduction in Treasuries.

The Fed also said they may change the amount they will be tapering these purchases  in future months – either higher or lower – depending on economic conditions. But let’s say the Fed continues to reduce their purchases by $15 billion per month. While they would be done with their outright purchases by June 2022, over that time they would have still bought an additional $500 billion in Mortgage Bonds and Treasuries through their reinvestments of their holdings.

So even with tapering their outright purchases, the Fed’s balance sheet will still increase from $8.5 trillion to $9 trillion, which is an astounding number. Additionally, the Fed said that they have not even discussed reducing their balance sheet and stopping their reinvestments.

The Fed holds Mortgage Bonds and Treasuries, which means that they receive principal payments from those holdings, which would normally reduce the amount of their balance sheet over time. Some of those securities would naturally mature as well. But the Fed has been taking these proceeds and reinvesting them back into Mortgage Bonds, which has prevented their balance sheet from getting smaller. These reinvestments amount to a massive additional $60 billion per month.

So even when they stop their outright purchases, which again would be by June if they continue to taper them at $15 billion per month, they are still going to remain quite accommodative until they start allowing their balance sheet to reduce over time.

However, rising inflation remains a concern. Regarding inflation, the Fed changed their language and said that inflation was elevated but “reflecting factors that are expected to be transitory. Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors.”

This updated stance reflects there is a lot of uncertainty regarding inflation. Basically, the Fed is hoping that supply chain bottlenecks ease, which will cause inflation to move lower.

Remember, inflation is the arch enemy of fixed investments like Mortgage Bonds because rising inflation reduces a Bond’s fixed rate of return. In other words, inflation can cause Mortgage Bonds to worsen or lose value and the home loan rates tied to them to rise. This is why keeping an eye on inflation remains critical.

Speaking of inflation, productivity was reported down 5% in the third quarter this year, which caused unit labor costs to rise 8%. The drop in productivity and rise in unit labor costs were both almost double expectations and may signal more inflation is ahead.

The Latest on Home and Rental Prices

CoreLogic released their Home Price Index report for September, showing that home prices rose by 1.1% from August and 18% year over year, which is a 0.1% decrease from the 18.1% annual gain reported for August.

The 18% annual figure for September is really a horizontal move from August’s 18.1%  and follows suit with recent appreciation data released by both Case-Shiller and the Federal Housing Finance Agency, which seem to reflect that we’ve reached the maximum year over year gains. Note this does not mean that home prices are going to decline. It simply means we may see slower month over month gains and that home prices may rise at a more modest pace.

Within the report, the hottest markets were Phoenix (+31%), San Diego (+23%) and Las Vegas (+23%).

CoreLogic forecasts that home prices will rise 0.1% in October and 1.9% in the year going forward (which is lower than their previous annual forecast of 2.2%). They remain conservative in their forecasting and continue to miss on the low side. For example, CoreLogic had forecasted prices for September would rise by 0.3% from August and they actually increased by 1.1%.

Rents are also on the rise, per Apartment List’s November National Rent Report which showed an 0.8% increase in rents. The report also showed that rents are up 16.4% year to date. In addition, 35 of the nation’s 100 largest cities have seen rents jump by more than 20% since the start of the pandemic.

What to Look for This Week

Inflation news will be the big headliner this week, beginning with an update on wholesale inflation when the Producer Price Index for October is reported on Tuesday. October’s Consumer Price Index follows on Wednesday.

We’ll also get an update on how small businesses were feeling last month when the National Federation of Independent Business Small Business Optimism Index is released on Tuesday.

The latest Jobless Claims data will be reported on Wednesday instead of Thursday due to the Veterans Day holiday.

Investors will also be monitoring two important auctions ahead, namely Tuesday’s 10-year Note auction and Wednesday’s 30-year Bond auction.

Technical Picture Mortgage Bonds made a big run up on Friday, breaking through their 50-day Moving Average. They ended last week trading in the middle of a range between a ceiling at the 100-day Moving Average and a floor at the 50-day. The 10-year broke beneath an important floor at 1.52% and ended last week battling in a tight range between the 50-day and 200-day Moving Averages.

Monday Market Update – 11/01/2021

Week of October 25, 2021 in Review

News regarding new home sales, home appreciation and inflation all made headlines. But what does the data really mean?

Sales of new homes surged in September, rising 14% from August at an 800,000 annualized pace. This was stronger than expectations and the highest reading since March. However, on an annual basis, sales were 18% lower when compared to September of last year – but there is more to this story as noted below. Meanwhile, Pending Home Sales, which measure signed contracts on existing homes, fell 2.3% in September after an 8% gain in August.

The ongoing high level of demand for homes around the country continues to help prices appreciate. The Case-Shiller Home Price Index showed that home prices rose 1.2% in August and 20% year over year. The Federal Housing Finance Agency (FHFA), which measures home price appreciation on single-family homes with conforming loan amounts, also reported that home prices rose 1% in August and 18.5% when compared to August of last year. While these are certainly still strong levels of appreciation, there are signs that appreciation may be moderating. Don’t miss the explanation below.

The latest Personal Consumption Expenditures (PCE) report showed that consumer inflation was up 0.3% in September. Year over year the index rose from 4.2% to 4.4%, which is the hottest reading in 30 years. Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.2% in September while the year over year reading remained at 3.6%.

Rising inflation is always critical to monitor because it can have a big impact on Mortgage Bonds and home loan rates, which are tied to them. While the annual Core PCE figures may appear to suggest that consumer inflation is holding steady, it’s important to look further into the data. Read on for additional analysis about this.

The unemployment picture continues to improve, as the number of people filing for benefits for the first time and on a continuing basis both declined to their lowest levels since before the pandemic began. Extended Benefits and the federal COVID plans all showed declines in the latest week as well. There are now 2.8 million people in total receiving benefits, which is down by almost 450,000 from the previous week.

Lastly, the first look at Gross Domestic Product (GDP) for the third quarter showed annualized growth of 2%, which was below the estimate of 2.6% but better than the 0.5% estimate from the Atlanta Fed. Real final sales fell 0.1%, which means that most of the gain came from inventory build and this added 2% to GDP. Personal spending was up 1.6%, driven by spending on services, as goods spending fell. Remember that GDP was 6.7% annualized in the second quarter so this third quarter reading reflects a big revision lower on full year GDP.

September New Home Sales Beat Expectations

New Home Sales, which measure signed contracts on new homes, rose 14% from August to September at an 800,000 annualized pace. This was stronger than expectations and the highest reading since March. However, when factoring in the negative revisions to sales in August, sales in September were really up 8%, though this is still a strong improvement.  

On an annual basis, sales were 18% lower when compared to September of last year, but that does not tell the whole story due to the market conditions from the pandemic last year. Sales were actually 14% higher when compared to September 2019, which is considered a more normal market.

Looking at inventory levels, there were 379,000 homes for sale, which was unchanged from August’s report but up 32% from last year. However, there’s an important caveat to this data. Of the homes for sale, only 9% were actually completed, while the rest are either not started or under construction. This speaks to the backlog builders are experiencing and the continued tight supply of homes actually being delivered.

The median home price was reported at $409,000, which is 18.7% higher year over year. Note that the median home price is not the same as appreciation. It simply means half the homes sold were above that price and half were below it.

Also of note, Pending Home Sales, which measure signed contracts on existing homes, fell 2.3% in September after an 8% gain in August. Sales were also down 8% year over year, though this is not a bad annual reading considering the lack of inventory and tough comparisons to the market from last year.

Home Price Appreciation Slows But Remains Strong

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices rose 1.2% in August and 20% year over year. This annual reading was unchanged from the annual reading reported for July and marks the first time since early 2020 that we have not seen a year over year increase.

While home price appreciation is expected to continue, this data could suggest that the pace of appreciation may begin to slow. Note that this does not mean that home prices will drop. It simply means that they may rise at a more modest pace.

The 20-city index also rose 1% in August and 20% year over year, with all the cities showing strong gains. Phoenix (+33%), San Diego (+26%), and Tampa (+26%) reported the highest annual gains.

The Federal Housing Finance Agency (FHFA) released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. While you can have a million-dollar home with a conforming loan amount, the report most likely represents lower-priced homes, where supply has been tight and demand strong.

Home prices rose 1% in August and they were also up 18.5% year over year, which is down from 19.2%. This is the first time we saw prices moderate on an annual basis in quite some time. Again, we are still seeing home prices rise, but at a slightly slower pace.

The Real Story Regarding Inflation

The Fed’s favorite measure of inflation, Personal Consumption Expenditures, showed that headline inflation rose 0.3% in September. Year over year, the index increased from 4.2% to 4.4%, which is the hottest reading in 30 years.

Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.2% in September. The year over year reading remained at 3.6%.

Remember that the year over year figures are calculated on a 12-month rolling basis. This means that in last Friday’s report, the September 2020 reading of 0.14% for Core PCE was replaced with the September 2021 reading of 0.2%. This is why the year over year numbers remained the same with rounding.

When we look ahead to the next two reports, here are the figures we will be replacing. First, 0.0% monthly Core PCE for October 2020 will be replaced with the data for October 2021 when it is reported on November 24. Then, 0.0% monthly Core PCE for November 2020 will be replaced with the data for November 2021 when it is reported on December 23.

This means if we continue to see monthly readings of 0.2%, we would see the year over year Core PCE reading climb by 0.4% to somewhere around 4%.

Why is this important?

Rising inflation can cause home loan rates to move higher. Home loan rates are tied to a type of Bond called Mortgage Backed Securities and as inflation erodes a Bond’s fixed return, the only way to compensate investors is with a higher rate. So, the possibility of rising inflation is always something we need to monitor.

It’s also worth noting that PCE is a poor measure of inflation because it has a low weighting towards housing and out of pocket medical expenses, both of which are very important to consumers. Real inflation is likely higher than what is reflected in this latest report.

On a related note, Imitation Homes, which is the largest landlord in the US, reported that new rents are up 18% year to date, while renewals are up 8%. Again, the PCE and Consumer Price Index inflation reports do a poor job of capturing this, showing rents only up 2% on a year over year basis.

In addition, incomes were down 1% overall due to the expiration of the extra benefits and Covid unemployment plans. But private sector wages were up almost 1% last month and running at a 10% increase if you annualized this figure over the last six months. This speaks to the wage-pressured inflation we are seeing from most companies having to pay more to retain and hire people.

Jobless Claims Continue to Improve

Initial Jobless Claims declined once again in the latest week, as the number of people filing for unemployment benefits for the first time fell 10,000 to 281,000. This is the lowest reading since before the pandemic.

Continuing Claims, which measure people continuing to receive benefits, also reached a pandemic-era low as they declined by 237,000 to 2.2 million.

The federal COVID plans, including the Pandemic Unemployment Assistance and Emergency Claims, fell by 335,000 as those plans continue to expire. Extended Benefits also dropped by 17,000.

There are now 2.8 million people in total receiving benefits, which is down by almost 450,000 from the previous week. The jobless claims picture continues to make significant improvements, despite the fact that many job openings remain.

What to Look for This Week

Manufacturing news kicks off the week on Monday with the ISM Index for October while we’ll get more news on home price appreciation when CoreLogic releases its Home Price Index report for September on Tuesday.

Then the Fed and labor sector data will make headlines, as the Fed’s two-day meeting begins Tuesday with the Monetary Policy Statement released on Wednesday. Investors will be closely listening for details regarding tapering of the Fed’s purchases of Bonds and Treasuries, which have been ongoing to stabilize the markets.

Investors will also be keeping an eye on labor sector news, beginning Wednesday when the ADP Employment Report will give us an update on private payrolls for October. Thursday brings the latest Initial Jobless Claims data, as usual. Then ending the week on Friday, the highly anticipated Bureau of Labor Statistics Jobs Report for October will be released, which includes Non-farm Payrolls and the Unemployment Rate.

Technical Picture

Mortgage Bonds recovered nicely after being rejected by the ceiling at the 25-day Moving Average and ended last week near that level. The 10-year has retreated from the important 1.60% level and ended the week testing a floor at the 25-day Moving Average.

Monday Market Update – 10/25/2021

October 21, 2021

Mortgage rates continued to rise this week due to the trajectory of both the economy and the pandemic. Even as the availability of existing homes is improving, prices remain high due to homebuyer demand and limitations on housing starts and permits resulting from the ongoing labor and material shortages. Despite these countervailing forces, we expect the housing market to remain strong as we head into the end of the year.

Week of October 18, 2021 in Review

Demand for homes and builder confidence remain strong, despite low inventory and ongoing supply chain issues. Initial Jobless Claims hit another important milestone, while the Fed revised an important forecast.

Builder confidence rose at the highest monthly pace since last November, per the National Association of Home Builders Housing Market Index. This real-time read on builder confidence rose 4 points to 80 in October, with all three components of the index (current sales conditions, sales expectations for the next six months and buyer traffic) moving higher.

Housing Starts, which measure the start of construction on homes, declined 1.6% in September. Yet looking closer at the data, we see that the decline was entirely in multi-family units as starts for single-family homes, which are in such high demand among buyers, were flat from August to September. Again, given the ongoing labor and supply chain issues builders have been facing, it’s a miracle to see single-family starts at unchanged levels.  

Building Permits, which are a good forward-looking indicator for Housing Starts, declined 7.7% from August to September, while single-family permits were down 1% to their lowest level in 14 months. This data signals that supply is likely going to remain tight into the future.

Meanwhile, sales of existing homes rebounded in September, rising 7% from August to an annual pace of 6.29 million units. Sales of single-family homes also rose 7.7%. However, sales are still lower when compared to September of last year, as much-needed inventory declined nearly 1% from August to September and 13% year over year.

On a positive note, Initial Jobless Claims hit another important milestone, as the number of people filing for unemployment for the first time fell 6,000 to 290,000. This is the lowest level since before the pandemic began. Continuing Claims, Extended Benefits and the federal COVID plans all showed declines in the latest week as well. There are now 3.28 million people in total receiving benefits, which is down over 370,000 from the previous week.

Also of note, the Federal Reserve Bank of Atlanta’s estimate for third quarter GDP was revised lower to 0.5%. This is down from its over 6% estimate made just two months ago in August and could be a sign that the economy is slowing a bit as stimulus wears off.

Finally, last week’s 20-Year Bond Auction was met with below average demand. The bid to cover of 2.25 is below the one-year average of 2.32. Direct and indirect bidders took 80.4% compared to 81.2% in the previous 12. Remember that high demand (which is reflected in the purchasing of Bonds and Treasuries) can push prices higher and yields or rates lower, while weak demand can signal that investors think yields will continue to move higher (which can have a negative effect on rates).

Builder Confidence Increases Despite Ongoing Challenges

 Housing Market Index 10

The National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence, rose 4 points to 80 in October. This was the largest monthly increase since last November.

Looking at the components of the index, current sales conditions rose 5 points to 87, sales expectations for the next six months rose 3 points to 84, and buyer traffic rose 4 points to 65.

Any reading over 50 on this index, which runs from 0 to 100, signals expansion. Despite the supply chain issues and labor shortages builders are facing, and the negative reports in the media, confidence remains strong due to the high demand for homes around the country.

The Real Scoop on Home Construction

 Housing Starts 10

Housing Starts, which measure the start of construction on homes, declined 1.6% in September to an annualized pace of 1.55 million homes. This is 7.4% higher than September of last year.

Yet starts for single-family homes, which are the most crucial, were flat from August to September at a 1.08 million pace. All of the decline was in multi-family units. It’s a miracle to see single-family starts at unchanged levels, given the ongoing labor and supply chain issues builders have been facing.

Building Permits, which are a good forward-looking indicator for Housing Starts, declined 7.7% from August to September, but they were flat year over year. Single-family permits, however, were down 1% to their lowest level in 14 months. Because permits are a leading indicator for future single-family starts, this data signals that supply is likely going to remain tight into the future. While this does makes it challenging to find a home, it should also be supportive of home prices.

Housing Completions, which speak to delivery times being delayed, were down 4.6% in September. This reflects how much of a backlog that builders have to work through.

Existing Home Sales Rebound in September

 Existing Home Sales 10

Existing Home Sales, which measure closings on existing homes, rose 7% from August to September, reaching an annual pace of 6.29 million units. However, sales were 2.3% lower versus September of last year. Sales of single-family homes also saw a 7.7% monthly increase, while being down 3.1% year over year.

The lack of homes for sale remains a challenge for many buyers across the country, as inventory declined nearly 1% from August to September to 1.27 million homes for sale. Inventory is also down 13% year over year.

The median home price was reported at $352,800, which is up 13.3% from September of last year. Remember that the median home price is not the same as appreciation. It simply means half the homes sold were above that price and half were below it.

First-time home buyers accounted for 28% of sales, ticking down a notch from 29% in August. Cash buyers remained stable at 23%, but this figure is up from 18% last September. Investors purchased 13% of homes, which was down from 15% the previous month.

Initial Jobless Claims Hit Another Important Low

 Jobless Claims 10

The number of people filing for unemployment for the first time fell 6,000, as 290,000 Initial Jobless Claims were reported in the latest week. This is the lowest level since before the pandemic began.

Continuing Claims, which measure people continuing to receive benefits, also reached a pandemic-era low, falling by 122,000 to 2.48 million.

The federal COVID plans, including the Pandemic Unemployment Assistance and Emergency Claims, declined by 140,000 as those plans continue to expire. Extended Benefits also dropped by 88,000.

There are now 3.28 million people in total receiving benefits, which is down over 370,000 from the previous week. The jobless claims picture continues to make significant improvements, despite the fact that many job openings remain.

What to Look for This Week

Key housing reports will once again make headlines, starting with an update on home price appreciation on Tuesday via August’s Case-Shiller Home Price Index and the Federal Housing Finance Agency (FHFA) House Price Index. Tuesday also brings data on September’s New Home Sales. Pending Home Sales for September follow on Thursday.

On Wednesday, we’ll get an update on Durable Goods Orders for September, while the first read on third quarter Gross Domestic Product will be reported on Thursday along with the latest Jobless Claims figures.

Ending the week on Friday, the Fed’s favored measure of inflation, Personal Consumption Expenditures, will be reported for September, along with Personal Income and Spending.

Technical Picture

Mortgage Bonds ended the week trading in a wide range between support at 101.859 and overhead resistance at 102.547. Bonds still have quite a bit of room to the upside if they can hold on to Friday’s gains. The 10-year is trading at around 1.63% after retreating from the important ceiling at 1.70%, which has kept a lid on yields thus far.